Strategic Leadership: Creating a Learning Organization nurturing a culture dedicated to excellence and ethical

and an Ethical Organization behavior. The interdependent nature of these three

activities is self-evident.
Strategic Leadership Consider…
Consider an organization with a great mission and a
To both create and implement proper strategies, firms superb organizational structure, but a culture that
must have strong and effective leadership. What are the implicitly encourages shirking and unethical behavior.
activities that leaders engage in, and what practices and Often, failure of today’s organizations can be attributed
capabilities enable leaders to be effective at sustaining a to a lack of equal consideration of these three activities.
competitive advantage for their firms? The imagery of the three-legged stool is instructive: it
will collapse if one leg is missing or broken. Exhibit 11.1
To what degree does ethical leadership matter? Three Interdependent Leadership Activities

To both create and implement proper strategies, firms Question?

must have strong and effective leadership, and this XYZ’s CEO scrapped the company’s commission- based
leadership must be strategic in managing, adapting, and reward system because it was rewarding employees for
coping in the face of increased environmental inappropriate behavior. This is an example of
complexity and uncertainty. In order to be successful at a. setting a direction.
creating and sustaining a competitive advantage, leaders b. designing the organization.
must engage in several activities, utilizing key c. unethical behavior.
capabilities, one of which is emotional intelligence, and d. failure to maintain the status quo.
the other of which is an awareness of how to create and
maintain an ethical organization. Effective leaders play Answer: B. although setting a direction for the
an important and often pivotal role in creating an organization is important, the organization’s control
organizational culture that pursues excellence while systems must be designed so they are consistent with
adhering to high standards of ethical behavior. the direction and the culture the CEO is trying to enable.
Changing the reward system is an example of designing
Strategic Leadership the organization.
 Leadership is the process of transforming
organizations from what they are to what the A. Setting a direction
leader would have them become. - requires the ability to scan the environment for
 Successful leaders are: knowledge about
a. Proactive – dissatisfied with the status quo o All stakeholders
b. Goal oriented – visualizing successful futures o Salient environmental trends & events
c. Focused on the creation & implementation of a
creative vision – understanding the process - Then integrate that knowledge into a strategic
vision of what the organization could become
This definition implies dissatisfaction with the status o A clear future direction
quo, a vision of what should be, and process for bringing o A framework for the firm’s mission & goals
about change. Leaders are change agents whose success o Leading to enhanced employee communication,
is measured by how effectively they formulate and participation, & commitment
implement a strategic vision and mission.
Setting a direction = a strategic leadership activity
I. Three Independent Leadership of strategy analysis and strategy formulation. In
order to set a direction for the organization, the
leader needs a holistic understanding of the firm’s
stakeholders, as well as an awareness of other
salient environmental trends and events. This
knowledge must be integrated into a vision of what
the organization could become. This leadership
activity requires the capacity to solve increasingly
complex problems, become proactive in approach,
and develop viable strategic options.

A strategic vision provides many benefits: a

clear future direction; a framework for the
Successful leaders recognize three interdependent organization’s mission and goals; and enhanced
activities that must be continually reassessed for employee communication, participation, and
organizations to succeed. These activities are (1) setting commitment. In order to do this, leaders sometimes
a direction, (2) designing the organization, and (3) need more creative solutions than incremental
 ones. They must come up with revolutionary
visions. See Strategy Spotlight for how 3M’s Excellent and ethical organizational culture = an
managers empower lower-level employees to organizational culture focused on core competencies
generate sustainability improvements. and high ethical standards. Organizational culture can
be an effective means of organizational control. Leaders
B. Designing the Organization play a key role in changing, developing, and sustaining
- Designing the organization requires building an organization’s culture. Managers and top executives
mechanisms to implement the leader’s vision must accept personal responsibility for developing and
and strategies through strengthening ethical behavior throughout the
o Structures & teams organization. They must consistently demonstrate that
o Systems & processes such behavior is central to the vision and mission of the
- Lack of appropriate design could cause organization. Several elements must be present and
problems reinforced for a firm to become highly ethical, including
o Managers who don’t understand their role models, corporate credos and codes of conduct,
responsibilities reward and evaluation systems, and policies and
o Reward systems that are not motivating procedures. Doing this requires leaders to overcome
o Inappropriate financial systems barriers to change and effectively use their power.
o Insufficient integrating mechanisms
II. Getting Things Done: Overcoming Barriers
Designing the organization = a strategic leadership and Using Power
activity of building structures, teams, systems, and - Leaders must overcome barriers to change
organizational processes that facilitate the
implementation of the leader’s vision and strategies. A. Overcoming Barriers to change
Leaders have an important role in creating systems and - Organizations are prone to inertia, slow to learn,
structures to achieve desired ends. For instance, adapt, & change because of
without appropriately structuring organizational o Vested interests in the status quo
activities, a firm would generally be unable to obtain an o Systemic barriers
overall low-cost advantage. It would be unable to closely o Behavioral barriers
monitor its cost through detailed and formalized cost o Political barriers
and financial control procedures. o Personal time constraints

Likewise, an unrelated diversification strategy would rely The success of the leader’s organization often depends
on financial or objective indicators of performance, on how he or she meets challenges and delivers on
whereas a related diversification strategy would promises. This requires a leader to overcome barriers to
necessitate reward systems that emphasize behavioral change.
measures. At times, almost all leaders have difficulty  Barriers to change = characteristics of
implementing their vision and strategies. Such problems individuals and organizations that prevent a
may stem from a variety of sources: (1) a lack of leader from transforming an organization.
understanding of responsibility and accountability Organizations at all levels are prone to inertia
among managers; (2) reward systems that do not and are slow to learn, adapt, and change.
motivate individuals (or collectives such as groups and  Many people have vested interests in the status
divisions) toward desired organizational goals; (3) quo = a barrier to change that stems from
inadequate or inappropriate budgeting and control people’s risk aversion.
systems; (4) insufficient mechanisms to integrate  systemic barriers = barriers to change that stem
activities across the organization. from an organizational design that impedes the
proper flow and evaluation of information;
C. Nurturing an excellent and ethical  behavioral barriers = barriers to change
organizational culture associated with the tendency for managers to
Nurturing an excellent and ethical organizational culture look at issues from a biased or limited
is a key leadership activity, requiring that managers & perspective based on their prior education and
leaders experience;
o Accept personal responsibility for developing &  political barriers = barriers to change related to
strengthening ethical behavior conflicts arising from power relationships;
o Consistently demonstrate that such behavior is  personal time constraints = a barrier to change
central to the mission & vision of the firm that stems from people’s not having sufficient
o Develop & reinforce time for strategic thinking and reflection.
- Role models
- Corporate credos & codes of conduct Leaders must draw on a range of personal skills as well
- Reward & evaluation systems, policies & as organizational mechanisms to move their
procedures organizations forward in the face of such barriers. One
of the most important tools a leader has for overcoming - Legitimate power is derived from
barriers to change is their personal and organizational organizationally conferred decision-making
power. authority and is exercised by virtue of a
manager’s position in the organization.
B. Effective Use of Power/Using Power Effectively - Reward power depends on the ability of the
- Leaders must make effective use of power leader or manager to confer rewards for positive
 Influence other people’s behavior behaviors or outcomes.
 Persuade them to do things they otherwise - Coercive power is the power a manager
would not do exercises over employees using fear of
 Overcome resistance & opposition punishment for errors of omission or
commission.
- Sources of power - Information power arises from a manager’s
 Organizational bases of power access, control, and distribution of information
o Legitimate, reward, coercive, information that is not freely available to everyone in an
 Personal bases of power organization.
o Referent, expert A leader might also be able to influence subordinates
because of his or her personality characteristics and
Successful leadership requires effective use of power in behavior. These are personal bases of power and
overcoming barriers to change. include referent power or a subordinate’s identification
 Power = a leader’s ability to get things done in a with the leader.
way he or she wants them to be done. Power is - Using referent power, a leader’s personal
the ability to influence other people’s behavior, attributes or charisma might influence
to persuade them to do things that they subordinates and make them devoted to that
otherwise would not do, and to overcome leader.
resistance and opposition. Effective exercise of - The source of expert power is the leader’s
power is essential for successful leadership. A expertise and knowledge. The leader is the
leader derives his or her power from several expert on who subordinates depend for
sources or bases. information that they need to do their job
 Organizational bases of power = a formal successfully.
management position that is the basis of the
leader power. This is power that a person wields Successful leaders use the different bases of power, and
because of his or her formal management often a combination of them, as appropriate to meet
position, and includes legitimate, reward, the demands of the situation, such as the nature of the
coercive, and information power. task, the personality characteristics of the subordinates,
 Personal bases of power = a leader’s and the urgency of the issue. Persuasion and developing
personality characteristics and behavior that are consensus are often essential, but so is pressing for
the basis of the leaders power. A leader might action. At some point stragglers must be prodded into
also be able to influence subordinates because [Link] 11.2 A Leader’s Bases of Power
of his or her personal attributes or charisma,
attributes that cause subordinates to identify
with the leader – referent power; or the leader III. Emotional Intelligence (EI): A key
is the expert on whom subordinates depend for Leadership Trait
information that they need to do their jobs The valuable traits of successful leaders:
successfully, so they rely on the leader’s - Technical skills – like accounting, operations
expertise and knowledge – expert power. research
- Cognitive abilities – like analytical reasoning,
quantitative analysis
- Emotional intelligence – like self- management,
managing relationships with others
Recent studies have found that effective leaders
have a high level of EI and that EI is a better
predictor of life and career success than IQ
(intelligence quotient). The five components of EI
are:
A. Self-awareness
B. self-regulation
C. motivation
D. empathy
Organizational power comes through the leader’s E. social skills
formal management position.
Valuable traits of successful leaders can be grouped into Complete the following sentence. “Inspiring and
three broad sets of capabilities: purely technical skills motivating people with a mission or purpose is a
(like accounting or operations research), cognitive ____________ for developing an organization that can
abilities (like analytical reasoning or quantitative learn and adapt.”
analysis), or emotional intelligence (like self- a. necessary and sufficient condition
management and managing relationships). Emotional b. necessary, but not a sufficient condition
intelligence = an individual’s capacity for recognizing his c. goal, but not a necessary condition
or her own emotions and those of others, including the d. goal and a required pre-condition
five components of self-awareness, self-regulation, Answer: B. inspiring and motivating people with a
motivation, empathy, and social skills. mission or purpose is a necessary but not sufficient
condition for developing an organization that can
learn and adapt to a rapidly changing, complex, and
interconnected environment. Inspiration alone is
not enough.

F. Emotional Intelligence: Some Potential

Drawbacks and Cautionary Notes
1. Effective Leaders Have Empathy for Others
(leaders may confuse empathy with sympathy and fail to
make “hard decisions”)
2. Effective Leaders Are Astute Judges of People
(leaders may rely too much on their judgment and
dismiss others’ insights)
Psychologist/journalist Daniel Goleman defines 3. Effective Leaders Are Passionate about What They
emotional intelligence (EI) as the capacity for Do, and They Show It
recognizing one’s own emotions and those of others. (passion may prevent leaders from other possibilities
Recent studies of successful managers have found that and ignore realities that others see)
effective leaders consistently have a high level of EI. 4. Effective Leaders Create Personal Connections with
Although IQ and technical skills are necessary for Their People
attaining higher-level managerial positions, EI, on the (If there are too many unannounced visits, it may lead
other hand, is essential for leadership success. to fear and micromanagement.)
 Self-awareness involves a person having a deep
understanding of his or her emotions, strengths, IV. Creating a Learning Organization
weaknesses, and drives. People with strong
social awareness are neither overly critical nor Successful learning organizations
unrealistically optimistic. Instead, they are  Create a proactive, creative approach to the
honest with themselves and others. unknown
 Self-regulation, which is akin to an ongoing  Actively solicit the involvement of employees at
inner conversation, frees us from being all levels
prisoners of our feelings. People who have self-  Enable all employees to use their intelligence &
regulation find ways to control inner feelings apply their imagination
and even channel them in useful ways. Self-
regulated people are able to create an A learning environment involves:
environment of trust and fairness.  An organization-wide commitment to change
 Motivated people show a passion for the work  An action orientation, applicable tools &
itself, such as seeking a creative challenges, a methods
love of learning, and taking pride in a job well
done. Learning organizations = organizations that create a
 Empathy is probably the most easily proactive, creative approach to the unknown,
recognizable component of EI. Empathy means characterized by (5 Key elements of learning
thoughtfully considering an employee’s feelings, organization. Each of these items should be viewed as
along with other factors, in the process of necessary, but not sufficient)
making intelligent decisions. (1) inspiring and motivating people with a mission and
 Social skill may be viewed as friendliness with a purpose,
purpose: moving people in the direction you (2) empowering employees at all levels,
desire, whether that’s agreement on a new (3) accumulating and sharing internal knowledge,
marketing strategy or enthusiasm about a new (4) gathering and integrating external information, and
product (5) challenging the status quo and enabling creativity.
(6) developing leaders
Question?
Higher-level skills are required of everyone, not just information), and rewards. The company needs to
those at the top. The learning environment involves disseminate information by sharing customer
organization-wide commitment to change, an action expectations and feedback as well as financial
orientation, and applicable tools and methods. It must information. The employees must know about the goals
be viewed by everyone as a guiding philosophy and not of the business as well as how key value-creating
simply as another change program. activities in the organization are related to one another.
Finally, organizations should allocate rewards based on
Successful learning organizations create a proactive, how effectively employees use information, knowledge,
creative approach to the unknown, actively solicit the and power to improve customer service quality and the
involvement of employees at all levels, and enable all company’s overall performance. In addition to
employees to use their intelligence and apply their enhancing the sharing of company information both up
imagination. A critical requirement of all organizations is and down as well as across the organization, leaders
that everyone feels and supports a compelling purpose. also have to develop means to tap into some of the
more informal sources of internal information, by
A. Empowering employees at all levels listening to what their people, customers, and suppliers
 Successful learning organizations empower are telling them.
employees at all levels
 The leaders/managers roles involve: C. Gathering and integrating external information
o Becoming coaches, information providers,  Successful learning organizations gather &
teachers, decision-makers, facilitators, integrate external information
supporters, or listeners  Firms must recognize opportunities & threats,
o Soliciting individuals’ input, valuing others’ ideas both general & industry-specific
& initiatives - By using the Internet
o Providing for trust, cultural control, & expertise - By using trade journals & membership in
at all levels professional organizations
- By doing both competitive & functional
When empowering employees at all levels, a benchmarking
manager’s role becomes one of creating an environment - By asking customers
where employees can achieve their potential as they
help move the organization toward its goals. Instead of Recognizing opportunities, as well as threats, in the
viewing themselves as resource controllers and external environment is vital to a firm’s success. As
powerbrokers, leaders must envision themselves as organizations and environments become more complex
flexible resources willing to assume numerous roles as and evolve rapidly, it is far more critical for employees
coaches, information providers, teachers, decision- and managers to become even more aware of
makers, facilitators, supporters, or listeners, depending environmental trends and events – both general and
on the needs of their employees. Leading edge industry-specific – and more knowledgeable about their
organizations recognize the need for trust, cultural firm’s competitors and customers.
control, and expertise at all levels. In the information This external information can come from various
economy, the strongest organizations are those that sources: (1) the Internet, which has dramatically
effectively use the talents of all the players on the team. accelerated the speed with which anyone can track
Empowering individuals by soliciting their input helps an down useful information or locate people who might
organization to enjoy better employee morale. It also have useful information;
helps create a culture in which middle- and lower-level (2) company employees at all levels can use “garden-
employees feel that their ideas and initiatives will be variety” traditional sources to acquire external
valued. information. Much can be gleaned by reading trade and
professional journals, books, and popular business
B. Accumulating and sharing internal knowledge magazines. Other venues for gathering external
 Successful learning organizations accumulate & information include membership in professional or
share internal knowledge trade organizations, attendance at meetings and
The firm shares information: conventions, and networking among colleagues inside
- Customer expectations & feedback and outside of the industry.
- Financial information (3) Benchmarking can be a useful means of employing
- Business goals extra information. Benchmarking = managers seeking
- How key value-creating activities are related out best examples of a particular practice as part of an
to each other ongoing effort to improve the corresponding practice in
 The firm allocates rewards based on how their own organization. Competitive benchmarking =
effectively employees use this information benchmarking where the examples are drawn from
competitors in the industry. Functional benchmarking =
Effective organizations must also redistribute benchmarking where the examples are drawn from any
information, knowledge (skills to act on the organization, even those outside the industry.
(4) Firms can also focus directly on customers for  Organizational ethics promote an operating
information. culture & determine acceptable behavior
- Ethical beliefs come from the values, attitudes,
D. Challenging the status quo and enabling & behavioral patterns of leadership
creativity o Unethical business practices involve the tacit, if
 Successful learning organizations challenge the not explicit, cooperation of others
status quo & enable creativity Ethics = a system of right and wrong that assists
 Leaders must bring about useful change individuals in deciding when an act is moral or immoral
o Forcefully create a sense of urgency and/or socially desirable or not. The sources for an
o Establish a “culture of dissent” individual’s ethics include religious beliefs, national and
o Foster a culture that encourages risk-taking & ethnic heritage, family practices, community standards,
learning from mistakes educational experiences, and friends and neighbors.
- Formalize forums for failure; move the
goalposts; bring in outsiders; prove yourself Organizational ethics = the values, attitudes, and
wrong, not right behavioral patterns that define an organization’s
operating culture and that determine what an
Leaders face barriers when trying to bring about organization holds as acceptable behavior. Business
change in an organization: vested interests in the status ethics has everything to do with leadership. Seldom
quo, systemic barriers, political barriers, behavioral does the character flaw of a lone actor completely
barriers, and personal time constraints. For a firm to explain corporate misconduct. Instead, unethical
become a learning organization, it must overcome such business practices typically involve the tacit, if not
barriers in order to foster creativity and enable it to explicit, cooperation of others. Ethics is as much an
permeate the firm. This becomes quite a challenge if the organizational as a personal issue. Leaders who fail to
firm is entrenched in a status quo mentality. Perhaps the provide proper leadership to institute proper controls
best way to challenge the status quo is for the leader to and systems that facilitate ethical conduct share
forcefully create a sense of urgency. Such initiative, if responsibility with those who conceive, execute, and
sincere and credible, establishes a shared mission and knowingly benefit from corporate misleads.
the need for major transformations. It can channel
energies to bring about both change and creative  The ethical orientation of the leader is a key
endeavors. factor in promoting ethical behavior
 Integrity & ethical values
Establishing a “culture of dissent” can be another - Shape behaviors
effective means of questioning the status quo and - Provide a common frame of reference
serving as a spur toward creativity. Here norms are - Act as a unifying force
established whereby dissenters can openly question the - Have a positive effect on employee commitment
superior’s perspective without fear of retaliation or & motivation to excel
retribution. - Can create value & a competitive advantage
Companies that cultivate a culture that encourages risk-
taking, a culture of experimentation and curiosity, make Ethical orientation = the practices that firms use to
sure that failure is not, in essence, an obscene word. promote an ethical business culture, including ethical
They encourage mistakes as a key part of their role models, corporate credos and codes of conduct,
competitive advantage. Some approaches to encourage ethically-based reward and evaluation systems, and
risk-taking and learning from mistakes include consistently enforced ethical policies and procedures.
formalizing forums for failure by sharing lessons of Ethical leaders must take personal, ethical responsibility
failure, move the goalposts to create flexibility while for their actions and decision making. Leaders who
forecasting, bring in outsiders to help neutralize the exhibit high ethical standards become role models for
emotions and biases that might prop up a flop, look for others and raise an organization’s overall level of ethical
supporting rather than countervailing evidence to prove behavior. The ethical organization is characterized by a
yourself wrong, not right. Failure can even play an conception of ethical values and integrity as a driving
important and positive role in one’s professional force of the enterprise. Ethical values shaped the search
development. for opportunities, the design of organizational systems,
and the decision-making process used by individuals
V. Creating an Ethical Organization and groups. They provide a common frame of reference
 Ethics deals with right and wrong that serves as a unifying force across different functions,
- Ethical beliefs come from religion, ethnic lines of business, and employee groups. Organizational
heritage, family practices, community ethics help to define what a company is and what it
standards, educational experiences, friends & stands for. The advantages of a strong ethical
neighbors orientation can have a positive effect on employee
commitment and motivation to excel. This is particularly
A. Individual Ethics versus Organizational Ethics important in today’s knowledge-intensive organizations,
where human capital is critical in creating value and thought and action. Ethics becomes the governing egos
competitive advantages. of an organization and not burdensome constraints.

B. Integrity-Based versus Compliance-Based Question?

Organizational Ethics Proactive measures to prevent organizational ethics
problems include all of the following except
a. instituting a reward system which considers
Ethical frameworks for integrity include: outcomes as its primary criterion.
 The compliance-based ethics program b. using leaders as role models of ethical behavior.
- Prevents, detects, & punishes legal violations c. issuing statements describing the organization’s
 The integrity-based ethics program commitment to certain standards of behavior.
- Enables ethical conduct d. using the organization’s information systems as
- Examines organizational members’ core guiding a control system.
values, thoughts, & actions Answer: A. A firm must have several key elements
- Defines responsibility & aspirations for ethical to become a highly ethical organization. These
conduct elements are highly interrelated. If a firm issues a
statement saying that certain standards of behavior
There cannot be high-integrity organizations without are critical, and encourages that this code of
high-integrity individuals. However, individual integrity conduct be enforced by policies based on sound
is rarely self-sustaining. Organizational integrity rests on corporate governance practices (such as properly
a concept of purpose, responsibility, and ideals for an audited financial statements), and then distributes
organization as a whole. An important responsibility of rewards based on outcomes rather than the means
leadership is to create this ethical framework and by which goals and objectives are achieved, this
develop the organizational capabilities to make it does not hold up managers who achieve these
operational. There are two approaches that can be used outcomes as being appropriate ethical role models.
to create this ethical framework. Faced with the
prospect of litigation, several organizations reactively
implement Interrelated elements of a highly ethical organization
compliance-based ethics programs = programs for include:
building ethical organizations that have the goal of  Ethical role models
preventing, detecting, and punishing legal violations.  Corporate credos & codes of conduct
But being ethical is much more than being legal, and an  Ethically-based reward & evaluation systems
integrity-based approach addresses the issue of ethics in  Consistently enforced ethical policies &
a more comprehensive manner. procedures
Integrity-based ethics programs = programs for building
ethical organizations that combine a concern for law A firm must have several key elements to become a
with an emphasis on managerial responsibility for highly ethical organization. These elements are highly
ethical behavior, including interrelated. For instant, reward structures and policies
(1) enabling ethical conduct; will be useless if leaders are not sound role models.
(2) examining the organization’s and members’ core
guiding values, thoughts, and actions; and
(3) defining the responsibilities and aspirations that C. Ethical role models
constitute an organization’s ethical compass.  Must be consistent in their words & deeds
 Their values & character must become
transparent to an organization’s employees
 They must take responsibility for ethical lapses
within the organization
- Courageous behavior by leaders helps to
strengthen an organization’s ethical
Compliance-based approaches are externally motivated environment
– that is, based on the fear of punishment for doing
something unlawful. On the other hand, integrity-based For good or for bad, leaders are role models in their
approaches are driven by personal and organizational organizations. Clearly, leaders must “walk the talk”; they
commitment to ethical behavior. A corporate counsel must be consistent in their words and deeds. The values
may play a role in designing and implementing integrity as well as the character of leaders become transparent
strategies, but it is managers at all levels and across all to an organization’s employees through their behaviors.
functions that are involved in the process. Once When leaders do not believe in the ethical standards
integrated into the day-to-day operations, such that they are trying to inspire, they will not be effective
strategies can prevent damaging ethical lapses, while as good role models. Being an effective leader often
tapping into powerful human impulses for moral includes taking responsibility for ethical lapses within
the organization – even though the executives  can help guide ethical behavior
themselves are not directly involved. By taking  By specifying proper relationships with
responsibility for misdeeds, the top executives – customers & suppliers
through their highly visible action – can make it clear - Through global sourcing guidelines to identify
that responsibility and penalties for ethical lapses go conflicts of interest
well beyond the “guilty” parties. Such courageous  By encouraging employees to behave ethically
behavior by leaders helps to strengthen an - Through effective communication, enforcement,
organization’s ethical environment. & monitoring
- Through sound corporate governance practices
D. Corporate credos & codes of conduct o Compliance with Sarbanes Oxley Act of 2002
 Provide a statement & guidelines for norms, Many situations that a firm face have regular,
beliefs & decision-making identifiable patterns. Leaders tend to handle such
 Provide employees with clear understanding of routine by establishing a policy or procedure to be
the organization’s position regarding behavior followed that can be applied uniformly to each
 Provide the basis for employees to refuse to occurrence. Such guidelines can be useful in specifying
commit unethical acts the proper relationships with the firm’s customers and
 Contents of credos & codes of conduct must be suppliers, i.e. through stringent global sourcing
known to employees guidelines that determine the relationship between the
company and its suppliers when awarding new
Corporate credo = a statement of the beliefs typically contracts. Carefully develop policies and procedures
held by managers in a Corporation. Corporate credos guide behavior so that all employees will be encouraged
and codes of conduct are mechanisms that provide to behave in an ethical manner. However, they must be
statements of norms and beliefs as well as guidelines for reinforced with effective communication, enforcement,
decision-making. They provide employees with a clear and monitoring, as well as sound corporate governance
understanding of the organization’s policies and ethical practices. In addition, the Sarbanes-Oxley Act of 2002
position. Such guidelines also provide the basis for provides considerable legal protection to employees of
employees to refuse to commit unethical acts and help publicly traded companies who report unethical or
to make them aware of issues before they are faced illegal practices.
with the situation. For such codes to be truly effective,
organization members must be aware of them and what
behavioral guidelines they contain.

E. Reward & evaluation systems

 can either support or undermine an ethical
orientation
 Support by creating an evaluation system that
rewards ethical thinking
- Actions are consistent with words; follows
through on commitments; readily admits
mistakes
 Undermines by rewarding results regardless of
how they were achieved
- Intense competition encourages falsification of
scores

It is entirely possible for a highly ethical leader to

preside over an organization that commits several
unethical acts. How? A flaw in the organization’s reward
system may inadvertently cause individuals to act in an
inappropriate manner if rewards are seen as being
distributed on the basis of outcomes rather than the
means by which goals and objectives are achieved.
Unethical or illegal behaviors are also more likely to take
place when competition is intense. Therefore, many
companies have developed reward and evaluation
systems that evaluate whether a manager is acting in an
ethical manner. See the example of Raytheon’s
“Leadership Assessment Instrument”.

F. Carefully developed policies & procedures